Where Will Gold Bottom in this Corrective Cycle?

Around two months ago I advised my Partners to look for Gold to drop to the
1040-1070 area in US dollars. This followed my projection in early August of
a Gold rally from 900 to 1250 before the next top, and I was close as we hit
$1,225 and rolled over. This correction so far in Gold is normal in a bull
market, and is intended to knock everyone off the back of the bull. The bull
likes to make sure as few people as possible are along for the ride.

Currently we are seeing a strong counter-trend rally up in the US Dollar.
Investor's should keep in mind that the dollar index is simply a mathematical
calculation against a basket of other currencies. In this case, 57% of that
formula is the Euro. The Euro has had a dramatic correction and is likely to
continue to drop due to problems in Greece and other countries. This makes
the dollar look better on a relative basis, but investors should remember this
is largely cosmetic. Deficits continue to balloon, debt ceilings are raised,
and the US Treasury has to rollover a significant amount of Treasury Bonds
this calendar year. Traders and Investors over-react to the rallying dollar
and start selling off Gold and Silver as fast as they can. However, at some
near term point, Gold is likely to firm up and bottom regardless of the dollar
rally. There has been no fundamental shift in the US Dollar or it's merits
in my opinion, and in fact, the recent economic events are only making Gold
look more attractive relative to other world currencies. This pullback is required
to work off the excessive optimist we saw in early December.

A pullback in Gold to the 102.50 area on the GLD ETF would fill a "Gap" in
that chart, and represent a normal bull market 50% correction of the last swing.
A further decline to the 97-98 area on the GLD ETF would represent a 61% Fibonacci
re-tracement of the entire rally from April 2009 into December 2009. This correction
in my opinion could continue into early March or May of this year, before the
next leg up begins. Gold investors are advised to scale into Gold as 1040 US
is hit, and all the way down to $980. At that point, the bull will continue
to new highs as the smart money will be accumulating the gold dips in my opinion
over the next 30-90 days.

Dave Banister is the Chief Investment Strategist and commentator for ActiveTradingPartners.com.
David has written numerous market forecast articles on various sites (SafeHaven.Com,
321Gold.com, Gold-Eagle.com, TheStreet.Com etc.) that have proven to be extremely
accurate at major junctures. You can read more at www.activetradingpartners.com